Finance Committee, 12 Apr 2005

Meeting date: Tuesday, April 12, 2005

Official Report 141KB pdf

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Budget Process

Agenda item 2 is consideration of a paper from our budget adviser, Arthur Midwinter, and from Ross Burnside of the Scottish Parliament information centre. Members will see—I remember it, as I was a member of the committee at the time—that Arthur wrote a paper for the session 1 Finance Committee that assessed the scope for change in the Scottish budget. He now asks for our views on updating that report. Would Arthur like to speak to his paper?

Yes. The proposal is for a background paper for the next spending review. Members might think that they have just got rid of the last one, but it is important to be prepared for the next spending review. The committee's approval would allow me to work on the background paper over the summer.

The proposed paper would update and develop the material in "The Real Scope for Change: Appraising the extent to which the Parliament can suggest changes to programme expenditure", for which we were asked to identify the degree of ring fencing in Executive budgets. I suspect that that element has grown, so it will be important to track ring fencing in the five years since that report was produced.

I expect to see changes in the budgetary structure of departments that will have implications for the Parliament's ability to influence budget decisions. I propose to try to break that down into staffing costs, operational costs and capital, which would go beyond what we did before, when we could obtain only the roughest estimate of staffing costs in the budget. They are a major constraint on the scope for change, and it would help to examine them, particularly given the controversy over the extent to which moneys have gone into staffing costs in the past two or three years. It would also help to consider some of the changes in activities as a result of those structural changes—to get a grip on how much money has brought in additional staff as opposed to the increasing cost of current staff, for example.

The third issue that I would like to map out and which we did not cover before concerns new programmes that have been introduced and their costs and old programmes that have been discontinued. We would not get a handle on that in an annual budget process, but it would be useful to bring such matters together at the start of a spending review.

Executive co-operation would be required, so we would need to approach it about access to the appropriate programme managers. The Executive co-operated last time, so I expect no problem with that. The proposed paper would be useful because it would generate much useful information for the spending review and for the efficient government initiative, and would give me a much better grip on the detail of budget spending.

Spending reviews are not built into legislation. No act says that spending reviews must be conducted; they just result from Government policy.

There could be no spending review.

If the United Kingdom Government changed, a spending review might not be undertaken in the formal way that is used at the moment.

That is true.

I have no objection to the proposed paper, which would be a useful piece of work for the autumn. Paragraph 3 of paper FI/S2/05/10/2 mentions efficiency savings. As this is our first week back—

You must mention them.

Indeed. If the technical efficiency notes were published during the holidays and the convener had no advance notification, I am astonished. If the convener was notified, I ask whether the information will be shared with the Finance Committee—she said, provocatively. I ask that only because I recall that the Minister for Finance and Public Service Reform has said on various occasions that the Executive would consult the Finance Committee seriously on a procedure for considering such issues. Will the clerk say whether the notes were published in the holidays and whether the minister wrote to the convener? If so, has the convener passed that correspondence to committee members, or are we left to our own devices to reflect on the notes?

Wendy Alexander did not hear me say at the beginning of the meeting that Des McNulty has had to go to the doctor because of a skiing accident. Perhaps he was lost in a snowdrift. The clerk can help us out.

I will update members. The Minister for Finance and Public Service Reform has not sent a formal letter, but we were alerted that the technical notes were to be published and we managed to obtain an advance copy, which we sent to Arthur Midwinter to read. I apologise that the notes have not been sent to committee members.

The convener has asked the minister to come to the committee's meeting on 10 May, when the committee will be able to take evidence on the technical notes. We understand that Audit Scotland will examine the technical notes and will report on them towards the end of April. The minister has confirmed that he will attend on 10 May to be questioned on the detail of the technical notes. We now have hard copies of the technical notes—they run to about 150 pages—which we can take to members' rooms, if that would help.

That would be helpful.

It is true that the English notes are 150 pages a go, so such documents are voluminous. It would be great for us to have hard copies.

It would be helpful to clarify the Auditor General for Scotland's position on the status of the notes in advance because, as members know, there has been some correspondence on that. The clerk could perhaps check the testimony that was made to the committee about Audit Scotland's role before and after publication and seek clarity about whether it audited the documents beforehand or whether it will audit them only afterwards. That would be helpful.

There is no point in having a discussion with the minister if we have no paper in front of us. We should timetable seeing the minister only if there is an opportunity to have, at a separate meeting, a briefing from our budget adviser on what is in the technical notes. I say that because the sum of money that is involved is in excess of £1 billion, which is a significant part of the budget. We are talking about the Executive's discretionary budget, and we have no sense of £300 million of it.

I presume that the committee will not meet on 3 May. If we are not meeting on that date, I wonder whether there will be time to have a discussion on the matter at our meeting in the previous week. That might be the most productive solution all round, rather than trying to absorb a paper and have a discussion with the minister on the same day. I say that partly because of the two issues that arise. First, where has the extra £300 million since December come from? The total is more than £1 billion, which is interesting. Secondly, there is an issue about how that is reported to us. A shift in £1 billion of expenditure is involved, but as yet there has been no clarity about how the reallocations are reported in the budget process. It would be helpful to have a chance to understand the formal position before there is any follow-up.

I take Wendy Alexander's point, which is valid. The committee must be au fait with the documents and it needs a chance to talk them over with its adviser before meeting the minister. For some reason, which beats me, we have not scheduled a meeting for Tuesday 3 May. [Laughter.] If the convener is spared, I will pass those concerns to him and we will see what we can do about it.

We have had preliminary discussions at official level and we are meeting the efficient government team next week for further discussions on the documents. The advice that we were given when I received them last week was that they are not yet the final versions because input from Audit Scotland has still to be made. The documents went to Audit Scotland at the same time as they came to us.

Are they publicly available? Are they published documents or draft published documents?

The officials have asked us to recognise that the documents might change again following Audit Scotland's input. My plan for the next week is to examine them so that I can brief the committee before the session with the minister and give my views on the usefulness of the measures.

We were given an assurance at a committee meeting that Audit Scotland would agree the documents before they were published. They have been delayed—that is fine—but the paradox is that, although we are now in the period during which the savings are meant to be made, we are still living with interim documents. There is a lot going on, and I accept that we need to schedule the diary far in advance, but the plan for the minister to speak to the committee on 10 May puts a lot of pressure on Arthur Midwinter. I think that we will have a more productive session if—

The point is that the documents have been published, albeit in draft. They have been published publicly rather than privately, so clearly the committee should have them.

If we see the documents before Audit Scotland makes its recommendations, that will give us an opportunity to influence what happens in the final cut and will allow the Executive to take the points on board.

Given the undertakings that were given to the committee, I am just astonished that they have not written to us to say, "The procedure that we outlined before has not been averred for the following reasons."

I am trying to get a feel for the issue from Arthur Midwinter; I am an economic naif, as you know.

I get worried when people say that. I would have said ingénu.

Or ingénu, as we say in France, but never mind.

I am interested in paragraph 3 of your paper, in which you say:

"In our experience, efficiency savings in budgets which are assumed rather than demonstrated seldom occur".

You go on to say:

"only identifiable efficiency gains should be accepted".

Do you have a feel for whether the efficiency gains that we are talking about are genuine?

I am waiting to examine the technical notes to see to what extent the efficiency gains are genuine. The most recent review was carried out under Mrs Thatcher in the 1980s.

A fine woman. I will not hear a word said against her.

I say only that efficiency savings never materialised under her. Spending grew in real terms throughout the period of the efficiency review. [Laughter.]

Those are shocking revelations, Arthur.

The paper seems perfectly sensible, particularly paragraph 5, but it strikes me that we are stuck in a time warp. We are looking for fairly protracted batch reports from the Executive. My understanding is that the Executive has moved on to pretty sophisticated computerised accounting records, using SAP software, which is mainstream. In organisations in the private sector, a committee such as this would have access to interrogate the data on a read-only basis. Should we not be looking to do that?

I think that the Official Report should show that when Jim Mather used the words "sophisticated" and "Executive" in the same sentence, our adviser smiled.

I am not sure about the technology; I am happy to explore the matter with the Executive to find out what the position is. As I understand it, the Executive is in the early stages of developing what I would call sophisticated financial modelling, rather than having its systems fully developed and already in use. I will explore the matter when I go to the meeting about the exercise.

It is helpful to put that marker down. As the technology develops and the functionality becomes available, there might be ways in which we can get better access to the data.

As there are no further points, do we agree that Arthur Midwinter should update his paper?

Members indicated agreement.

We look forward to receiving it.

Meeting closed at 10:46.